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Post Info TOPIC: How to included prior incorporation trading figures to a first year accounts submission?


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How to included prior incorporation trading figures to a first year accounts submission?


Hello All,

I would really appreciate some help here, I have a limited company that I am trying to help out with their first year accounts submission but not very sure how to deal with their 3 years prior to incorporation trading income and expenses. According to HMRC up to 7 years of this type of trading figures can be included, so all good here, but how these figures should be added to the accounts? All expenses and income are posted on Xero on the correct dates, but do I have to post a journals to bring them forward to the year I will be filling? Or do I have to submit it somehow separately? Please help!

Thanks so much.

Lina



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Lina


Guru

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Hi Lina, welcome to the forum

How about a bit of an intro first, we always ask newbies, are you self-employed or employed within bookkeeping and accountancy, what qualifications and experience do you have? that sort of thing

What do you mean by 3 years prior to incorporation income? How has this been declared before? Cannot be income of the Company if it did not exist, surely!



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice



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Plus who is your MLR with and do you have PII in place if this is a fee paying client.

Who will be checking and verifying the work you are doing for this one?

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Senior Member

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I just spotted the 'income'.

Why would you think this is pre trading related?

Take a step back and start the conversation again with some dates and past facts.


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Forum Moderator & Expert

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Just to clarify before you continue.

Are you saying that his was an existing business that has now incorporated.

If so, did the existing business not have an accountant that advised them to incorporate?

If they have an existing accountant why are you the one struggling with this.

If they did not have an an existing accountant and just decided to incorporate for the shits and giggles of it then they need an accountat skilled in incorporations of existing entities on board (I assume that you are not?).

No advice offered on here in relation to the question could take into account all of the facts of the case.

Shaun.


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Shaun

Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.



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Hi All,

Thank you for your participation in this conversation didn't expect that much assumptions tho .

So to clarity I am AAT qualified and working in accounting for the past 10 years. The company I am talking about is my friend's and him and another guy are musicians that have been playing in a band and building their own little record label as far as I can remember. No accounting knowledge, so they have just been going along and doing what they like without any understanding of legal requirements, after few years when their income and expenses got higher and they've decided to take it more seriously and got themselves a bookkeeper who I believe pointed out that there is no company registered and did that for them (which has happened at the beginning of 2019). My role here is to help them out to file their first accounts correctly and to find an accountant that will look after their company in the future. I am not paid for this and there is no need of certain financial verification as Casu mentions here as far as I am aware.

Hope that's a little more clear and please go ahead and shoot with more questions or advice.

Thanks
Lina

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Lina


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Hi Lina

I don't think they were assumptions, I just based my answer on your opening post, yes you can include some prior expenditure in the first years accounts if it was for the Company but not income, I think the problem is that depending on the level of income that has been earnt then it may be the case that this should have been treated as self-employment or a partnership and dealt with through self-assessment with Income Tax and N/I being paid, you need to get the previous 3 years sorted out first and any returns filed, then you can move onto incorporation.



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice



Master Book-keeper

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Lina, welcome to the madhouse.

I think it does need to be made ultra clear - based on the fact you mentioned there is 3 years pre trading income (as well as expenditure) - that the pre trading expenditure rule you are looking at is one that cannot be applied in this scenario. Anything expended on the (same trade) company has clearly been expended under the 'partnership' and should not be moved to the Company.

I think you need to take a step back a little.

When did they start trading, originally, when they were just 'playing at it'? When did they start earning ANY income? Have they completed tax returns for all these relevant years? Under what trading entity have they filed tax returns? Have they even registered as self employed? Do they have a partnership agreement? Do they have a shareholders agreement? What is the structure for the shareholding? Who owns the song royalties? What impact will all of this have on an eventual ER position?

Why are you looking at 7 years prior when it is clear they have been running a business earlier? As mentioned above - that rule does not cover this scenario, but is probably why, in fairness, some assumptions have been made about your background, because that quite honestly is a rookie error and lets face it assumptions wee the only thing available because no introduction had been provided before your initial post.

So perhaps you can give a bit more information. You say you are qualified and have been working in accounting for a while. But can I ask - what sort of experience you have? Have you been working in a practice? Or in industry? Do you have any tax experience? Do you have a licence from AAT? Or is this just a side job (albeit unpaid) to get you some experience towards your goal of setting up on your own? Just a better guage of your knowledge can aid people who are trying to help you.

Also - given you have done AAT, you will know their rules about helping friends. Its a no-no under their Professional Ethics code. Plus there is the professional competence and due care issue to consider. All AAT members are bound by this code. It begs the question why you are doing this.

Beside all that....

As Shaun has suggested - why are they not engaging a suitably qualified Accountant now (plus one versed in the quirks of their industry, never mind the incorporation issues)? I say this often to clients and to folk on here - tax planning - is all in the planning, ie BEFORE you do anything! So they have already made a fudge up of lots of opportunities, but do you really want them to miss out on any more?

This lot could have late registration fees for non registration of self employment? You clearly have late tax returns to complete. What fines/penalties need to be paid? What excuses can you use to reduce these (sir, ' I dont know about Accounting' is not a valid excuse).

Then you have the incorporation of an existing business to complete with all the legals and accounts that that will entail. As they are members of a band is that even the right structure? How are going to deal with existing royalty rights and transfer of royalty rights from the individuals to the limited company and the resultant legal and tax issues in this regard? Is that even the right way to go - who is advising them on this? If they dont transfer the royalties how will the company acquire the right to use them? It might be early days,but mess this one up and the ramifications will be huge and costly - to you as well as them. So do make sure you have some suitable PII in place If you are stilling to plow on regardless.They might be friends now, but I will guarantee they will not be when this gets messed up.

Why are they now running the Limited company books on the same xero package as the prior business? They need to be separated out, they are not the same legal entity. You need to draw a line on one before even looking to start the new one.

Whose name are the existing contracts in? Can any of the mess be unravelled easily?

You will perhaps/likely need HMRC clearance for the incorporation deal.

Sorry its in a bit of a disjointed order, too much time in the sun today. That said I have a million more questions that I can ask on structure/tax/accounts, never mind the royalty situation but think that if you have had no experience in this industry, you really should pass it on BEFORE the first batch of accounts have been completed.

Ive not even considered the record label issues.

Nor optimising tax in the limited company.

Oh and dont forget you may need to consider setting up as an agent so you can have all these conversations with HMRC.

What software are you going to use for their Accounts and CT submission, plus personal tax returns? Plus beware - over disclosure in a set of accounts at companies house can be detrimental to the health and wellbeing of a limited company so choose carefully.



-- Edited by Cheshire to correct typos



-- Edited by Cheshire on Wednesday 20th of May 2020 11:22:35 PM

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Joanne

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

You should check out answers with reference to the legal position (and by that I dont mean with HMRC)



Master Book-keeper

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Sorry deleted.. me being a thicko lol


-- Edited by Leger on Wednesday 20th of May 2020 07:34:05 PM

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John

Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.



Senior Member

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LinaKochanske wrote:

Hi All,

Thank you for your participation in this conversation didn't expect that much assumptions tho .

So to clarity I am AAT qualified and working in accounting for the past 10 years. The company I am talking about is my friend's and him and another guy are musicians that have been playing in a band and building their own little record label as far as I can remember. No accounting knowledge, so they have just been going along and doing what they like without any understanding of legal requirements, after few years when their income and expenses got higher and they've decided to take it more seriously and got themselves a bookkeeper who I believe pointed out that there is no company registered and did that for them (which has happened at the beginning of 2019). My role here is to help them out to file their first accounts correctly and to find an accountant that will look after their company in the future. I am not paid for this and there is no need of certain financial verification as Casu mentions here as far as I am aware.

Hope that's a little more clear and please go ahead and shoot with more questions or advice.

Thanks
Lina


The more I read, the more there is a need for what I suggested, Ive got to say.

Sometimes you have to admit that you are not capable of doing a role, we all do. You can get out of this and save face with non paying client, by citing ethics. Do them a favour as well as yourself, pass it on.

or plow on and expect a huge claim on your PII in a few years.



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Master Book-keeper

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Funny, but this is the 2nd time this week that Ive seen an 'Accountant' looking to include pre -incorp income and expend. Flippin scary!

__________________

Joanne

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

You should check out answers with reference to the legal position (and by that I dont mean with HMRC)



Newbie

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Date:

Thank you All,

You all helped me understand that this task is way out of my league and is best to pass it over for a more experienced accountant to deal with right away. I thought it would be good experience for me before passing on to an accountant but I guess is not worth doing it on my friends expense as well as good point about "AAT no nos'. Very helpful suggestion and I really appreciate that! Thanks again.

Lina



-- Edited by LinaKochanske on Tuesday 26th of May 2020 02:55:40 PM

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Lina


Master Book-keeper

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LinaKochanske wrote:

Thank you All,

You all helped me understand that this task is way out of my league and is best to pass it over for a more experienced accountant to deal with right away. I thought it would be good experience for me before passing on to an accountant but I guess is not worth doing it on my friends expense as well as good point about "AAT no nos'. Very helpful suggestion and I really appreciate that! Thanks again.

Lina



-- Edited by LinaKochanske on Tuesday 26th of May 2020 02:55:40 PM


Be good to have the answers to your background Lina as that will help with any future questions you may have to ask on here, assuming we havent scared you off the idea at all.

I often see folk talking about simple accounts or simple tax returns - not sure Ive seen any yet, they all manage to throw up something weird, but this is a great site for helping with such things and a two way street of info helps this massively.



__________________

Joanne

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

You should check out answers with reference to the legal position (and by that I dont mean with HMRC)

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